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5 U.S. Dividend ETFs Outperforming Amid Market Turmoil
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Wall Street wrapped up a scary first quarter, with two of the three major indices logging their worst quarter in more than two years. The S&P 500 dropped more than 4.5%, while the tech-heavy Nasdaq plummeted 10.4%. The Dow Jones Industrial Average shed 1.3% and recorded its first back-to-back monthly losses since October 2023.
Notably, the S&P 500 ended its streak of five straight winning quarters, while the Nasdaq wiped out more than half of last year’s gains in the last three months (read: 10 Stocks of the S&P 500 ETF Up More Than 20% in Q1).
The stock market remains clouded by growing uncertainty around the new U.S. administration’s economic tariffs. These tariffs are expected to drive up consumer prices, thus curbing spending and weighing on the U.S. economy. Additionally, the barrage of recent data indicates a downturn in the economy. Though the Fed, in its latest meeting, reaffirmed its forecast for two rate cuts this year, it expects higher inflation and slower economic growth. This has heightened volatility and uncertainty in the market.
In such a scenario, investors have become defensive and shifted their focus to products that provide stability and safety in a rocky market. As a result, the appeal for dividend-focused ETFs has risen. We have highlighted several reasons why dividend investing seems to be a viable strategy amid the market turmoil.
Income Generation: One of the primary benefits of dividend investing is the steady stream of income generated through dividend payouts. Even if the market is volatile, dividend-paying stocks can provide a consistent income stream. These can be particularly beneficial in a low interest rate environment where the yield on other income investments like bonds may be relatively low.
Potential for Dividend Growth: Companies with a strong history of dividend growth may continue to increase the same over time, which can help offset the impact of rising interest rates. These are typically established, profitable companies that have the financial flexibility to increase dividends even during economic downturns. Their ability to grow dividends can be a sign of financial health, which might provide some level of protection in an uncertain market.
Defensive Nature: Dividend-paying stocks are often found in sectors considered "defensive," such as utilities, consumer staples and healthcare. These sectors can hold up better during economic downturns as they produce essential goods and services that are in demand regardless of economic conditions. Therefore, they may provide some level of stability in a portfolio if there are concerns about potential economic impacts from future rate hikes (read: 5 Defensive ETF Strategies to Follow Amid Market Meltdown).
Compounding Returns: Reinvesting dividends can significantly enhance the power of compounding and can lead to exponential growth over the long term.
Hedge Against Inflation: Dividend-paying stocks also serve as a hedge against inflation. The new administration has hinted at tariffs on all nations, compounding fears of inflation and slowing growth. Companies that can pass on increased costs to customers can maintain or even increase their profitability during inflationary periods, which can support their ability to pay dividends.
ETFs to Bet On
Below, we have highlighted five dividend ETFs that are clearly outpacing the broad market indices this year by wide margins and are considered solid options for investors searching for yields as well as some returns in uncertain markets.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) ) – Up 8.8%
First Trust Morningstar Dividend Leaders Index Fund offers exposure to stocks that have shown the highest dividend consistency and sustainability by tracking the Morningstar Dividend Leaders Index. It holds 95 stocks in its basket, with key holdings in healthcare, financials, consumer staples, utilities and energy. With AUM of $5.3 billion, First Trust Morningstar Dividend Leaders Index Fund charges 45 bps in annual fees from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Core High Dividend ETF (HDV - Free Report) ) – Up 8.6%
iShares Core High Dividend ETF offers exposure to 75 high-quality and high-dividend stocks by tracking the Morningstar Dividend Yield Focus Index. It is slightly concentrated on the top firms, with each making up for no more than an 8.3% share. From a sector look, energy and consumer staples make up the top two sectors with 22.1% and 21.4%, respectively, while healthcare and financials round off the top four with double-digit exposure. iShares Core High Dividend ETF has AUM of $11.3 billion and trades in a solid volume of around 456,000 shares a day. It charges 8 bps in fees per year and has a Zacks ETF Rank #3 with a Medium risk outlook.
Franklin U.S. Low Volatility High Dividend Index ETF (LVHD - Free Report) ) – Up 7%
Franklin U.S. Low Volatility High Dividend Index ETF offers exposure to 111 U.S. companies with relatively high yield and low price and earnings volatility. It follows the Franklin Low Volatility High Dividend Index, charging 27 bps in annual fees. Consumer staples and utilities are the top two sectors with 24% share each, while real estate takes 13.5% of the portfolio. Franklin U.S. Low Volatility High Dividend Index ETF has amassed $541.1 million and trades in an average daily volume of 71,000 shares. It has a Zacks ETF Rank #3.
WisdomTree US High Dividend Fund (DHS - Free Report) ) – Up 6.8%
WisdomTree U.S. High Dividend Fund offers exposure to U.S. high dividend-yielding companies by tracking the WisdomTree U.S. High Dividend Index. It holds 377 stocks in its basket, with key holdings in healthcare, consumer staples, financials and energy. WisdomTree U.S. High Dividend Fund has amassed $1.2 billion in its asset base and trades in average daily volume of 37,000. It charges 38 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Be Smart This April Fool's Day: Buy Market-Beating ETFs of Q1).
Opal Dividend Income ETF is an actively managed ETF that provides a concentrated portfolio of 31 companies that the portfolio managers have identified as businesses paying attractive dividends. These are expected to grow over time and currently trade at favorable valuations. The ETF is skewed toward the consumer staples sector at 22%, while energy, utilities & financials round off the next three positions. Opal Dividend Income ETF has AUM of $156.2 million and trades in average daily volume of 34,000 shares.
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5 U.S. Dividend ETFs Outperforming Amid Market Turmoil
Wall Street wrapped up a scary first quarter, with two of the three major indices logging their worst quarter in more than two years. The S&P 500 dropped more than 4.5%, while the tech-heavy Nasdaq plummeted 10.4%. The Dow Jones Industrial Average shed 1.3% and recorded its first back-to-back monthly losses since October 2023.
Notably, the S&P 500 ended its streak of five straight winning quarters, while the Nasdaq wiped out more than half of last year’s gains in the last three months (read: 10 Stocks of the S&P 500 ETF Up More Than 20% in Q1).
The stock market remains clouded by growing uncertainty around the new U.S. administration’s economic tariffs. These tariffs are expected to drive up consumer prices, thus curbing spending and weighing on the U.S. economy. Additionally, the barrage of recent data indicates a downturn in the economy. Though the Fed, in its latest meeting, reaffirmed its forecast for two rate cuts this year, it expects higher inflation and slower economic growth. This has heightened volatility and uncertainty in the market.
In such a scenario, investors have become defensive and shifted their focus to products that provide stability and safety in a rocky market. As a result, the appeal for dividend-focused ETFs has risen. We have highlighted several reasons why dividend investing seems to be a viable strategy amid the market turmoil.
Income Generation: One of the primary benefits of dividend investing is the steady stream of income generated through dividend payouts. Even if the market is volatile, dividend-paying stocks can provide a consistent income stream. These can be particularly beneficial in a low interest rate environment where the yield on other income investments like bonds may be relatively low.
Potential for Dividend Growth: Companies with a strong history of dividend growth may continue to increase the same over time, which can help offset the impact of rising interest rates. These are typically established, profitable companies that have the financial flexibility to increase dividends even during economic downturns. Their ability to grow dividends can be a sign of financial health, which might provide some level of protection in an uncertain market.
Defensive Nature: Dividend-paying stocks are often found in sectors considered "defensive," such as utilities, consumer staples and healthcare. These sectors can hold up better during economic downturns as they produce essential goods and services that are in demand regardless of economic conditions. Therefore, they may provide some level of stability in a portfolio if there are concerns about potential economic impacts from future rate hikes (read: 5 Defensive ETF Strategies to Follow Amid Market Meltdown).
Compounding Returns: Reinvesting dividends can significantly enhance the power of compounding and can lead to exponential growth over the long term.
Hedge Against Inflation: Dividend-paying stocks also serve as a hedge against inflation. The new administration has hinted at tariffs on all nations, compounding fears of inflation and slowing growth. Companies that can pass on increased costs to customers can maintain or even increase their profitability during inflationary periods, which can support their ability to pay dividends.
ETFs to Bet On
Below, we have highlighted five dividend ETFs that are clearly outpacing the broad market indices this year by wide margins and are considered solid options for investors searching for yields as well as some returns in uncertain markets.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) ) – Up 8.8%
First Trust Morningstar Dividend Leaders Index Fund offers exposure to stocks that have shown the highest dividend consistency and sustainability by tracking the Morningstar Dividend Leaders Index. It holds 95 stocks in its basket, with key holdings in healthcare, financials, consumer staples, utilities and energy. With AUM of $5.3 billion, First Trust Morningstar Dividend Leaders Index Fund charges 45 bps in annual fees from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Core High Dividend ETF (HDV - Free Report) ) – Up 8.6%
iShares Core High Dividend ETF offers exposure to 75 high-quality and high-dividend stocks by tracking the Morningstar Dividend Yield Focus Index. It is slightly concentrated on the top firms, with each making up for no more than an 8.3% share. From a sector look, energy and consumer staples make up the top two sectors with 22.1% and 21.4%, respectively, while healthcare and financials round off the top four with double-digit exposure. iShares Core High Dividend ETF has AUM of $11.3 billion and trades in a solid volume of around 456,000 shares a day. It charges 8 bps in fees per year and has a Zacks ETF Rank #3 with a Medium risk outlook.
Franklin U.S. Low Volatility High Dividend Index ETF (LVHD - Free Report) ) – Up 7%
Franklin U.S. Low Volatility High Dividend Index ETF offers exposure to 111 U.S. companies with relatively high yield and low price and earnings volatility. It follows the Franklin Low Volatility High Dividend Index, charging 27 bps in annual fees. Consumer staples and utilities are the top two sectors with 24% share each, while real estate takes 13.5% of the portfolio. Franklin U.S. Low Volatility High Dividend Index ETF has amassed $541.1 million and trades in an average daily volume of 71,000 shares. It has a Zacks ETF Rank #3.
WisdomTree US High Dividend Fund (DHS - Free Report) ) – Up 6.8%
WisdomTree U.S. High Dividend Fund offers exposure to U.S. high dividend-yielding companies by tracking the WisdomTree U.S. High Dividend Index. It holds 377 stocks in its basket, with key holdings in healthcare, consumer staples, financials and energy. WisdomTree U.S. High Dividend Fund has amassed $1.2 billion in its asset base and trades in average daily volume of 37,000. It charges 38 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Be Smart This April Fool's Day: Buy Market-Beating ETFs of Q1).
Opal Dividend Income ETF (DIVZ - Free Report) ) – Up 6.7%
Opal Dividend Income ETF is an actively managed ETF that provides a concentrated portfolio of 31 companies that the portfolio managers have identified as businesses paying attractive dividends. These are expected to grow over time and currently trade at favorable valuations. The ETF is skewed toward the consumer staples sector at 22%, while energy, utilities & financials round off the next three positions. Opal Dividend Income ETF has AUM of $156.2 million and trades in average daily volume of 34,000 shares.